January 23, 2006

Page 14

Selling a company isn't quite like taking a bag of beans to market. Assuming
that both farmers are honest, one bean is pretty much like another. They'll
taste about the same, and your farts will smell about the same at the other
end of the process.

Companies come in all kinds of shapes and sizes, and the one thing they have
in common is that if they're for sale, they are generally dysfunctional. As a
buyer, the trick is to spot what's wrong and determine whether you can live
with it.

Actually, the dysfunction tends to extend to all companies, for sale or not.
In a corporate transaction, you have broken Company A buying broken Company B,
and the people involved are all busy scoping out each other's brokenness.

Whole Earth had one primary problem: as companies go, it was poor. It had
revenue of around $5 million per year, which is pretty nice if you're one
person, but pretty iffy for 50. Being poor meant that Whole Earth didn't have
good toys, and it didn't have enough money to give people good pay, so they
were unhappy. Not having good toys meant that it was hard to provide good
service to the customers, so they became unhappy and went away, which meant
that less money would come in.

Now, when you come into a company and you want to make it healthier
financially, you need to look at two things: how much money comes in, and how
much money goes out. A lot of people go for the quick fix - they cut down the
money going out - it's called cutting costs, and it usually involves firing
people. The idea with cutting costs is that there's a lag time between when
you cut the costs and when those cut costs come home to roost. Usually what
happens is that the cost-cutter doesn't just cut out fat - they also cut
muscle, and weaken the company. Anyhow, you try to sell the company during
that lag.

The other way of fixing the company is harder - you try to boost the money
that is coming in. Usually you need some money in order to make that happen -
it's called investing. You take this money, you fix up some stuff, maybe you
hire some people, and if you've done it right, revenues go up not just enough
to pay the money back, but some beyond that.

Kevin Randolph had an expression about cutting costs: "You can't save your
way to success." The course he took with Whole Earth was the harder and more
ethical one. He got honest money where he could, and he moved Whole Earth
from just treading water to where it could actually begin to have some forward
motion. He took Scott under his wing and mentored him in management, and he
got Scott to implement improved services. In some cases costs actually were
cut, but by and large what happened is that Whole Earth actually got some new
toys and various real problems were fixed.

One of Kevin's other mantras was "Fewer, better people." He and Scott had a
few go-rounds over this particular mantra, but once they got all of that
sorted out, Scott came to understand that instead of having 12 people on his
team, several of whom were distinctly mediocre, he could have 8 people, all of
whom quite good. Furthermore, Scott could pay those 8 good people much better
than 12 people had been paid, and this made both him and his people happy.

One of the surprisingly simply things that Kevin taught Scott was about
providing treats to his people as a way of building the team. It is amazing
what a little food and a few toys will do for morale and group-feeling. Pizza
is the traditional food, of course, though donuts were thrown in occasionally,
given Scott's fondness for the sugary food-like stuff. Scott also went to
Toys-R-Us one day and put about $200 of Nerf guns into his team's hands. This
was especially fun given that Kevin sat in a glass-walled office. It wasn't
unusual to come into Whole Earth and see a salvo of Nerf darts, with their
suction-cup tips, stuck to Kevin's office wall. Kevin's response to this was
distinctly tolerant: "Tell your people to not do that when I have guests."